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Can Social Scoring Really Affect Credit Applications?

Posted by Jamie Mackenzie Smith in Credit Score on 24 January 2019

Increased consumer awareness of the importance of a good Credit Score in recent years means that most people applying for a mortgage, loan or other form of finance know that the odds of their application being successful largely depend on the information contained within their Credit Report (among other factors) and how the lender in question interprets it.

This method of estimating Creditworthiness has been established for a long time, dating all the way back to Professor Altman’s Z-Score, devised in 1968. This method has been deemed so effective that it formed the scoring principals used in the vast majority of lending decisions today.

In a small number of cases, credit applications might also be subject to an alternative (or additional) method of credit checking known as Social Scoring. This has been developed by a number of different Fintech companies over the past few years and seeks to use the information held about individuals across a variety of social networks in order to verify your identity or even determine whether to approve or reject an application for credit.

So, what is a social media score, how widely is it used and how much say can it really have in the outcome of a credit application?

How does social scoring work?

Unlike the information used in traditional Credit Checks, the data used in UK social scoring isn’t held by the UK’s Credit Reference Agencies – indeed it isn’t collated into a single source anywhere. It’s very different to China’s Social Credit Score system which you may have read about and which we’ve talked about previously, where your social score can dictate things like whether you can work for government-owned businesses or use the country’s high-speed railway.

Before any analysis can take place, social scoring platforms require you to grant access to your social media (and in some instances email) accounts. Once ‘inside’, an algorithm (rather than a real person) analyses the information it finds.

A number of different social scoring platforms exist and vary in terms of how they work, but generally they aim to assess different aspects of your social footprint, commonly checking things like the language you have used in posts or comments, your circle of contacts and linked accounts, how often and when you are active online, indications of your financial wellbeing and what your perceived interests are.

Your social media score is largely derived from information that you’ve voluntarily posted, so if you regularly check in at pubs and restaurants on Facebook and then post something about ‘never having money left at the end of the month’, a potential lender might see this as evidence that you may have money management issues.

Similarly, if the scoring system used needs access to your emails, it may check for emailed payment confirmations to get a better idea of your monthly outgoings.

Where can social scoring be used?

The main thinking behind social scoring is twofold: to provide applicants with a limited credit history another way to show their creditworthiness, and to provide a potential lender with additional information to supplement what it already knows.

In a sense, it is used to ‘fill the gaps’ in some areas that aren’t covered by traditional credit reporting.

Younger people are a particular area of focus, where a large number might have very little in terms of a traditional Credit History, but an expansive social footprint.

Social Scoring for limited credit histories

As yet, there are no confirmed or high-profile examples of social scoring being used as the primary factor in a lending decision.

A number of organisations have taken part in trials, including Carphone Warehouse and Visa Europe, as well as a handful of short-term ‘payday’ lenders but there is no evidence of any having enough confidence to rely solely on it.

Digging deeper

Your Credit Report can give an insight into how reliable you’re likely to be as a borrower, but in some scenarios there might be a need to discover something that isn’t mentioned on your Credit Report in order to get a better idea of whether or not you represent the kind of customer they’re after.

Take landlords for instance: many have a strict ‘no pets’ policy and want to make sure their new tenants won’t breach this, so your social media might be checked for keywords that could give away whether or not you’ve got any furry friends who are likely to make an appearance.

This could also include your current employment status and history or even basic contact details.

What information is checked to produce a social score?

Because of the number of different platforms out there that produce Social Scores and the wide range of applications for them, a variety of different pieces of information can be checked when generating a score.

Unlike your Credit Report, which is filled with information that lenders and other agencies report to Credit Reference Agencies about you, much of the information held about you publicly online has been put there voluntarily, so how much or how little is seen depends on what you choose to share.

Things that can be checked to create a social score include:

Mobile phone history

Web searches for payday loans

Friends’ indebtedness

Personal information

Your public posts & updates

Anomalies between the information provided in an application across your social media accounts

Social & browser history

In most instances this information will only be used to corroborate the information you’ve already provided, and unless you’ve given the lender reasonable cause to question any of the information you’ve provided, chances are this information will not be checked over too closely.

Reportedly there is at least one case of an applicant being declined a mortgage because the way their job was reported on LinkedIn differed to what was provided on the application, but if you have to resort to manipulating the information on your mortgage application, your chances of getting accepted are probably fairly slim in the first place.

Realistically this information has very limited reach. According to Avocado social, only around 33% of the UK’s online population have a LinkedIn account, and it’s hard to imagine mortgage lenders turning down potential customers because they don’t have an account on the UK’s 10th most popular social media site.

It may also be the case that consumers finally begin to understand the consequences of sharing potentially sensitive information publicly and restrict both what they post and who they give access to - especially following on from the recent controversy surrounding Facebook and Cambridge Analytica.

Limitations of social scoring

Social media-based scoring can (in theory at least) provide an insight into an applicant’s personal life and circumstances, but it can’t compare to traditional Credit Scoring when it comes to assessing your Creditworthiness – that is to say how good a borrower you are.

The main reason for this is that one of the key elements – how you’ve managed credit agreements in the past – isn’t a component of a social score.

Without this information, a potential lender can’t say with any degree of confidence what sort of borrower you might turn out to be, making lending or approving a credit agreement a much riskier proposition.

Ease of changing data

One of the things about a social score that could make it an attractive option for people with a limited credit history is also a potential barrier to wider use: because it is so easy to edit and influence what appears within your social media feeds, the score itself is fundamentally flawed as the sole means of assessing you accurately as a potential customer.

Even if your email account is checked for order confirmations and receipts, this too can be easily manipulated by deleting anything you wouldn’t want a lender to see.

Your Credit Report on the other hand is legally required to be as close to a truthful a representation of you and your Credit History as possible. Both lenders and Credit Reference Agencies are legally-bound to ensure that the information they report about you is, to the best of their knowledge, accurate and up-to-date. That’s why you can’t change or remove entries just because you don’t want lenders to see them.

On top of your Credit History, other information is also shared and assessed, including your Electoral Roll status, any court information, linked addresses, aliases, financial associations and more – again, most of which can’t be sourced from social media.

Think about it this way: if you were a mortgage lender about to loan someone hundreds of thousands of pounds to buy a house, which source of information would you place more trust in?

With previous endorsement from Visa Europe and a number of mortgage lenders supposedly checking the social media profiles of would-be customers it seems like social scoring as a concept is at least being taken seriously. But considering the checks and affordability tests already carried out by mortgage lenders, provided you’re completely honest during the application it seems highly unlikely you’ll get declined for a mortgage based on what you’ve posted online.

Similarities between social scoring and Credit Scoring

Despite all the limitations covered here, the reasoning behind both traditional and social credit scoring is broadly speaking the same: to establish that you are who you say you are and to work out how likely you are to pay on time.

In terms of usage, both platforms predominantly appeal to the same groups: insurers, lenders, landlords and employers. It’s been more or less accepted over the past 10 years that there’s a good chance that employers might glance over your social media profiles before offering you a job, but some roles in certain professions may require a credit check to be carried out as well.

Similarly, landlords will carry out a credit check before accepting an application to rent, in part to see if the applicant is who they claim to be and see if they’ve had any CCJs or bankruptcies in their past. But now landlords may also check social media to see if you were being fully truthful on your application and even if you’re the kind of person they would like living there.

Some social scoring platforms even recommend a cull of your contacts to make sure none of your close friends are getting up to anything that you wouldn’t want to be associated with. This isn’t dissimilar to the way that Financial Associations are reported on your Credit Report - giving lenders the ability to take into account the Credit Rating of anyone that you are financially connected to when assessing your own creditworthiness.

The two types of scoring are both used to help assess risk, but the information they show is entirely different when it comes to where it might be used.

Even if your Facebook profile shows you singing in the local church choir on Sunday and volunteering in the soup kitchens in the evening, you might struggle to get a loan, rent a flat or even find a job in the financial sector if there are late payments showing on your Credit Report. By the same token, years of unbroken Electoral Roll listings at the same address and a clean bill of health when it comes to Court Information won’t help you if your landlord finds out that your roommate is a 30kg German Shepherd.

In summary

In some circumstances, yes, you could be turned down for credit, a job or rented property based on your social media activity. In real terms though, there are so many more important factors that are considered in lending decisions such as affordability, the lender’s own internal criteria and (arguably most importantly) the information on your Credit Report that social scoring remains something of a drop in the ocean.

Even if a lender does score your social media when you apply for credit, the information they find there is not going to take precedence over the information found on your Credit Report, and at best will be treated as supplementary information.

With that in mind, if you are thinking of applying for credit, making sure your Credit Report is in good shape before you do is the thing that could make the difference between being accepted or rejected.

To see what matters most to a lender when you apply for credit, you can try checkmyfile FREE for 30 days, then for just £14.99 a month afterwards which you can cancel online, by email or by phone.

Would-be borrowers in the US have been given a potential new route when it comes to proving their creditworthiness to potential lenders, thanks to the recently announced UltraFICO score, which looks beyond the information traditionally used to assess credit applications.

When thinking about your finances and your eligibility to take out a loan, credit card or any form of borrowing, it’s tempting to boil your creditworthiness down into one single ‘make-or-break’ Credit Score. It’s not quite that simple though.

Whether you’re planning on applying for credit in the very near future, or you just want to make sure that everything is as it should be, it pays to check your Credit Report. In many cases, there will even be easy steps you can take to improve your Credit Rating.

Credit checks are an integral part of modern life: from buying a house or car to applying for a new job or passing a tenancy check, your Credit Report is remarkably versatile. But considering what an important role it can play, there are still a number of popular myths surrounding them.

The relationship between your credit score and your credit history seems to be cyclical: a good credit history gives you a good credit score and a good credit score means you should have easy access to credit, right? Well, in a way. But you might be surprised at how much of a role a ‘score’ really plays when it comes to borrowing.

Launched in 2012 and expected to be fully-implemented by 2020, China’s Social Credit System (SCS) could be described as at best an invasion of privacy and at worst a simple case of unabashed state-controlled oppression. Based loosely on the principles used in traditional credit scoring, this system goes several steps further to score you as a citizen and assesses how much you contribute to/hinder society.

In case you were looking for another good reason to check your credit file, we’ve got some good news for hopeless romantics: a recent survey by Discover and Match Media Group (owner of online dating sites including Match.com, Tinder and OkCupid) found that a good credit score is considered even more attractive to potential suitors than having a nice car.

Tenants have often felt hard done by, receiving no recognition or reward for keeping up with their single biggest monthly outgoing: rent. For that reason, many across the UK will welcome the news that it’s now been made easier for landlords and letting agents to report rent payments to credit reference agencies, finally contributing to their credit file.

There are plenty of reasons why you might have missed a payment on your loan or credit card, and chances are your most immediate thoughts are about making the payment to the lender and making sure everything is square.

When applying for credit, lenders will calculate your credit score using elements of your application as well as your credit files to determine if the risk of providing the credit is within acceptable levels. Lenders will all calculate your credit score differently as the criteria for lending will differ from lender to lender. This is because each element of your credit file is valued differently by each lender – where one lender may decline your application based on the presence of some negative historical information, other lenders may deem it old enough to be irrelevant to your current ability to maintain credit agreements.

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